When it comes to providing an enabling environment for businesses, Pakistan always ranks at the bottom. The latest survey of global business environment reveals that Pakistan has dropped two notches since last year. Given that the Sharif government is seen business friendly, the decline in Pakistan's ranking is rather troubling.
The Economist Intelligence Unit (EIU) recently released its business environment rankings for 2014. Singapore retained its top spot as the most business-friendly economy. Pakistan, on the other hand, was ranked 74 out of the 82 countries. Those ranked lower than Pakistan were countries with grave socio-political unrest and a collapse of market economy resulting from the State's undue interference in commerce.
The EIU's latest rankings are worrisome on several fronts. First, why has Pakistan's ranking dropped during the first year of the pro-business Nawaz League's stay in power? It seems fixing the country's commerce is easier said than done. Secondly, even among countries only from South Asia, Pakistan ranks lowest, with Bangladesh and India higher.
However, be reminded that these reports always come with a catch.
The EIU business environment rankings are one of several rankings that collapse a multitude of indicators into a single statistic. Often these rankings are similar in their findings. Hong Kong and Singapore often rank at the top of these rankings, while countries facing socio-political unrest are ranked at the bottom.
Explaining the rankings
There are obvious limitations in the methodologies these rankings are derived from, and nation states with artificially low populations are favoured over those with bigger ones.
The EIU ranks Singapore, Switzerland and Hong Kong as the first, second, and third most ideal place for doing business. However, the combined population of these countries is less than that of Mumbai.
The fact that these countries have been able to maintain their populations at optimum levels has a lot to do with their better ranking. In fact, with the exception of the United States and Germany, no other large population country made it to the top 20. The bottom 10 were mostly countries facing huge population pressures from domestic high fertility rates and/or refugees from neighbouring states.
Despite the obvious limitations, these rankings are useful in comparing business environment in similarly endowed states.
For instance, one could compare how long it takes to register a business across countries in a region, or one could compare the efficiency of the judiciary in resolving contractual disputes. Countries that make it easier to establish, operate, or dissolve a business would be ranked higher than the rest.
The EIU report divulged the reasons behind the higher rankings of some Asian countries: Those ranked higher offered better environments for finance and foreign investments in healthy and competitive markets.
"Especially in East Asia, competition between cities to become hubs for international finance, manufacturing and logistics has driven improvements in the business environment," revealed EIU.
The state of infrastructure remained poor in most Asian economies.
Can countries with strife be business-friendly?
With Pakistan in a state of war right now, and armed forces engaging militants at more than one front, it is hard to talk about developing a better business environment in the country. But to suggest that isn't possible is flawed thinking because there do exist examples of countries facing similar strife, yet delivering better business environments.
Take Israel for example, which is ranked 20th. Given its location and territorial disputes with the Palestinians and other countries, Israel dedicates a large chunk of its resources on defence. Still, its universities are engaged in innovation, its businesses are generating value, and the state is committed to providing a business-friendly environment.
Attracting foreign investments and businesses are critical for the economic development of low-income countries like Pakistan. The governments do have a choice:
They could either act as enablers and make it easy for citizens or foreigners to establish, conduct, and dissolve businesses, if necessary. Or they may act as roadblocks and keep requiring NOCs from 20 different agencies before issuing licenses to operate a business.
The current political leadership has proven its abilities to borrow soft loans from the IMF and other 'friendly' states. It has yet to show success with attracting foreign investments in infrastructure and power. This would require improving business environment in the country.
If Pakistan continues to slide down in business environment rankings, foreign investors are unlikely to consider Pakistan for however small an investment.